First Trust enters MBS space with low duration ETF (LMBS)

First Trust is famous for its unique approach under which the issuer looks to offer better or more targeted exposure to a given asset class. Of late, the issuer has been beefing up its portfolio with fresh-themed products in a space which it has already entered and exploring new arenas as well.

Such a maiden zone is the mortgage-backed securities space. The issuer has come out with a brand new product – First Trust Low Duration Mortgage Opportunities ETF (LMBS) – the first such mortgage-backed securities (MBS) fund for First Trust.

LMBS in Focus

The actively managed fund seeks to provide exposure to mortgage-backed debt securities and other mortgage-oriented products associated with residential and commercial mortgages, per the issuer. The fund involves securities with high investment grade with at least three-fifth of assets being government-sponsored and lower ‘expected price sensitivity to the credit cycle’. The fund charges 65 bps in fees a year for this exposure.

This approach results in the fund holding a basket of 36 securities. The portfolio’s average effective duration will typically be not more than three years. The portfolio is widely diversified with no product accounting for more than 2.20% of the basket. However, what makes the fund different from other MBS ETFs is that unlike other funds, LMBS seeks to limit the duration extension.

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